206 F.

2d 103

AMTORG TRADING CORP.

v.
MIEHLE PRINTING PRESS & MFG. CO. (OF
DELAWARE).
No. 210.
Docket 22620.

United States Court of Appeals Second Circuit.

Argued April 10, 1953.
Decided July 22, 1953.

Paul L. Ross, New York City (Wolf, Popper, Ross, Wolf & Jones and
Benjamin Spiegel, all of New York City, on the brief), for plaintiffappellant.
William B. Moore, New York City (McLaughlin, Russell, Bullock &
Lark, New York City, on the brief), for defendant-appellee.
Before SWAN, Chief Judge, and CHASE and CLARK, Circuit Judges.
CLARK, Circuit Judge.

On August 1, 1947, plaintiff, Amtorg Trading Corporation, the Soviet

purchasing agency in New York, entered into a written contract with
defendant's predecessor in interest for the purchase of 30 printing presses, f.o.b.
Milwaukee, for the avowed purpose of exporting them to Russia. The presses,
designed for a special purpose printing of currency were to be
manufactured according to specifications by the press manufacturing company
to whose interests the present defendant has succeeded under circumstances not
here pertinent.1 The contract called for the delivery of 10 presses by February,
1948, 10 more by March, 1948, and the final 10 in April, 1948. The total price
was $352,035.90, of which a down payment of 25 per cent or $88,008.97 was
required and paid. The first lot of 10 presses was delivered in February, 1948,
and Amtorg duly paid for the balance due upon it over the 25 per cent advance
credited to that group. There remained a prepayment toward the remaining 20

presses of $59,946.47 still held by defendant, although delivery of these presses

has never been made because of circumstances now to be related.
2

On March 1, 1948, there became effective regulations, 13 Fed.Reg. 1120-22,

promulgated in January, 1948, of the Department of Commerce's Office of
International Trade pursuant to the Export Control Law of 1940, 54 Stat. 714,
50 U.S.C.Appendix, 701, as amended, barring further export of these goods to
Russia unless an export license therefor was obtained. While the parties applied
for a license, it was ultimately denied in June. Amtorg refused tender of the
remaining 20 presses; Miehle brought suit in the New York Supreme Court for
the purchase price, less the prepayment of $59,946.47; and Amtorg
counterclaimed for return of this latter sum. The state court granted summary
judgment to Miehle and this was affirmed on appeal. Miehle Printing Press &
Mfg. Co. v. Amtorg Trading Corp., 275 App.Div. 748, 88 N.Y.S.2d 271.
Before the decision of the appellate division came down, however, Miehle had
sold the presses to the United States Bureau of Engraving and Printing for a
price which was $18,765 more than its contract price to Amtorg. Miehle then
obtained leave to discontinue without prejudice its suit against Amtorg, whose
motion for leave to file a supplemental answer was denied without prejudice
since it could assert its rights in a new action and again the decision was
affirmed by the appellate division. Miehle Printing Press & Mfg. Co. v.
Amtorg Trading Corp., 278 App.Div. 682, 103 N.Y.S.2d 493.

Amtorg thereupon brought this present action in the court below basing the
jurisdiction of the court both on a federal question allegedly arising under the
export regulations and upon the diverse citizenship of the parties. The court
below rejected the former, but sustained the latter ground, which of course is
adequate to support the suit, since plaintiff and defendant are corporations of
New York and Delaware respectively. The complaint set forth six claims or
"causes of action," each in various ways laying claim to the down payment
alone or together with the $18,765 profit. The court, construing New York law,
held that plaintiff as a buyer in default was not entitled to recover and hence
denied its motion for summary judgment and granted that of defendant.
D.C.S.D.N.Y., 108 F.Supp. 170. On this appeal Amtorg challenges that
decision and seeks summary judgment in its favor, pressing only three of its
claims: the first, which seeks return of the prepayment on the theory that the
federal export restrictions frustrated the basic purpose of the contract and thus
terminated it; the second, which demands both the prepayment and the $18,765
profit on resale to avoid unjust enrichment of the defendant, even if the federal
regulation did not excuse plaintiff's nonperformance; and the sixth, which seeks
return of the prepayment because its retention by defendant would constitute
"an unjust and inequitable forfeiture" and "impose an unconscionable penalty"

on it.
4

On the first claim, frustration of the contract, the New York law seems rather
clearly against the plaintiff. See Bardons & Oliver, Inc., v. Amtorg Trading
Corp., 123 N.Y.S.2d 633, affirmed 275 App. Div. 748, 88 N.Y.S.2d 272,
affirmed 301 N.Y. 622, 93 N.E.2d 915, a like claim against Amtorg by another
manufacturer; also Pierson & Co. v. Mitsui & Co., 111 Misc. 388, 181 N.Y.S.
273, holding that there is no impossibility of performance where delivery to the
buyer is to occur in this country. There is nothing to the contrary in the federal
cases which deal only with actual impossibility. Pacific Trading Co. v. Mouton
Rice Milling Co., 8 Cir., 184 F.2d 141; Patch v. Solar Corp., 7 Cir., 149 F.2d
558, certiorari denied 326 U.S. 741, 66 S.Ct. 53, 90 L.Ed. 442. And the rule is
accepted as thus stated in 6 Corbin on Contracts 354 (1951). Hence we need not
decide at this point whether federal or state law governs; in any event the claim
of frustration must be denied.

But on the claims for restitution for unjust enrichment, most inclusively stated
in the second "cause of action," we reach an issue of great interest and
importance. The early view that a contract defaulter is barred from all recovery,
even for a manifest benefit conferred, has called forth criticisms of telling force;
one recalls the famous early decision of Parker, J., in Britton v. Turner, 1834, 6
N.H. 481, 26 Am.Dec. 713, allowing a quantum meruit recovery on a contract
of personal service where the plaintiff was in default. The principle that a
contracting party in default may nevertheless recover the amount of actual
benefit conferred on the opposing party has been strongly favored by Professor
Corbin, see 5 Corbin on Contracts 1122 et seq. (1951); and he, as Reporter of
this part of the Contracts Restatement, engaged in fruitful collaboration with
Judge Cardozo in the drafting of the famous 357 of that restatement in
language suggested by the judge (5 Corbin on Contracts 1135, n. 1) to
provide for such recovery. The provision is properly restricted; the plaintiff's
nonperformance is not to be "wilful and deliberate"; and plaintiff cannot
recover mere earnest money or payment which the contract provides may be
retained and which "is not so greatly in excess of the defendant's harm that the
provision is rejected as imposing a penalty." As Corbin points out, op. cit.
supra, many of the cases which state the rule more restrictively often find
means of allowing recovery, while others are cases where restitution would be
actually unfair or no real benefit is proven. See Harris v. The Cecil N. Bean, 2
Cir., 197 F.2d 919, 922; also Corbin, The Right of A Defaulting Vendee to the
Restitution of Instalments Paid, 40 Yale L.J. 1013 (1931); Goble, Right of A
Defaulting Plaintiff, 22 Ill.L.Rev. 315 (1927); Thurston, Recent Developments
in Restitution, 1940-1947, 45 Mich.L.Rev. 935, 950-953 (1947); and the
notable reports of the New York Law Revision Commission cited below.

In the federal courts the position of the Restatement has been accepted. See
Schwasnick v. Blandin, 2 Cir., 65 F.2d 354, 357; and Michigan Yacht & Power
Co. v. Busch, 6 Cir., 143 F. 929. In New York at an early date the stricter rule
obtained; and the case of Lawrence v. Miller, 1881, 86 N.Y. 131, refusing
recovery to a defaulting vendee of land, has been often cited as a precedent for,
among others, contracts for the sale of goods. So in the New York Annotations
to the Restatement of Contracts it is said that 357 is more liberal than the
New York rule. But there is no modern discussion in any opinion in the Court
of Appeals; thus we lack any real analysis of the possible effect of Judge
Cardozo's draft upon his own court. There have been, however, several trends
away from this harsh rule in situations deemed exceptional which have finally
led to recent legislation overturning it. The leader in this movement has been
the Law Revision Commission, whose two monographic essays proposing the
legislation adopted in 1952 give a complete analysis of the problem, with
particular attention to the New York cases: Acts, Recommendation and Study
relating to Recovery for Benefits Conferred by Party in Default, N.Y. Law
Revision Com'n, 1942 Report, Recommendations and Studies 179-243; Act,
Recommendation and Study relating to the Right of a Buyer of Goods to
Restitution for Benefits Conferred Under a Contract of Sale on Which He Has
Defaulted, N.Y. Law Revision Com'n, 1952 Leg.Doc. No. 65(C), 1-19.

Among the "Mitigating Doctrines" which the Commission finds have been
applied in New York, see 1942 Report 27-31, 1952 Leg. Doc. No. 65(C), 1213, are those of "substantial performance" used notably in the case of building
and construction contracts and "severability" used primarily in employment
contracts. So N.Y. Labor Law, McK.Consol.Laws, 196 requires payment of
wages every six days, while N.Y. Personal Property Law, McK.Consol.Laws,
125(1) the Uniform Sales Act 44 allows recovery for part performance
by a defaulting vendor for goods retained by the vendee, and N.Y. Personal
Property Law 79, 80, 80-a, allows a defaulting buyer under a conditional
sales contract any surplus on a compulsory or optional resale by the seller.
Another ground relied on is that money advanced by a buyer or lessee may be
treated, in the absence of definite specification, as merely security for the
ultimate payment, rather than as a down payment, thus leaving any excess not
required as security refundable. See cases such as Becker v. Rothschild, Sup.,
141 N.Y.S. 528; Mernagh v. Nichols, 132 App. Div. 509, 118 N.Y.S. 59;
Cohen v. Champagne, Sup., 183 N.Y.S. 76; Petito v. Aiello, 181 Misc. 371, 47
N.Y.S.2d 447; and cases collected and the rule stated in 11 A.L.R.2d 701, 716;
see also Horgan & Slattery v. City of New York, 114 App.Div. 555, 100 N.Y.S.
68. This attempted distinction between part performance and a security deposit
seems as impractical and unjustified as the Law Revision Commission states it
to be. 1942 Report 61-63, 1952 Leg.Doc. No. 65(C), 13-16.

Because of the harshness of the doctrine, including the palpable discrimination

between the defaulting seller and buyer, and between the latter and the
conditional vendee, the Commission proposed the amendment to the Sales Act
which was adopted, effective September 1, 1952, as N.Y. Personal Property
Law 145-a. By its terms the Act does not apply to any contract made before
its effective date. It allows the buyer in default restitution of the amount by
which the payments made or the reasonable value of the goods exceeds either
an agreed-upon sum in the contract which constitutes a reasonable liquidation in
advance of the seller's anticipated damages or, in the absence of such a clause,
20 per cent of the value of the total performance for which the buyer is
obligated under the contract. The latter provision constitutes "in effect a
statutory liquidated damage provision to be used only as an offset." 1952
Leg.Doc. No. 65(C), 6.

Such is the developing New York law on this interesting issue. Where a
changing public policy is so manifest, it would seem that the Court of Appeals
of New York might well give some effect to it in cases not as yet regulated by
the new statute. It is one of the appreciated defects of the famous ErieTompkins doctrine that it suggests a rigidity in the statement of state law by
federal judges which is foreign to the habits and customs of their state
colleagues, as well as to the development of the law generally. A statement by
us of New York law in terms of the old cases might turn out to be more
hazardous a course than boldly to try to look into the womb of time, however
much that course may be decried. See L. Hand, J., dissenting in Spector Motor
Service v. Walsh, 2 Cir., 139 F.2d 809, 822, vacated 323 U.S. 101, 65 S.Ct.
152, 89 L. Ed. 101.

10

Under the circumstances here present, however, we do not think we need grasp
the nettles of this dilemma. In the Foreign Aid Appropriations Act, 1949,
approved June 28, 1948, P.L. 793, 80th Cong., 2d Sess., c. 685, 204, 62 Stat.
1054, at page 1059, U.S.Code Cong.Serv.1948, pp. 744, 745, Congress
provided:

11

"Whenever an export license for a commodity, the production or shipment of

which to a nonparticipating country was contracted for in good faith prior to
March 1, 1948, is denied or cannot be obtained under section 6 of the Act of
July 2, 1940 (54 Stat. 714), as amended, the Administrator shall provide for the
procurement of such commodity to transfer to a participating country in
accordance with the requirements of such country, at not less than the contract
price of such commodity to the producer or exporter, as the case may be,
including any cost incurred in converting the commodity to meet the
requirements of the participating country."

12

In its complaint, plaintiff alleges that defendant's profitable sale to the United
States Bureau of Engraving and Printing was made by virtue of the relief here
provided, while defendant counters that the statute had no bearing on the sale
nor did the Administrator participate. But we do not see that this issue of fact
need be resolved for our present purposes. What we are interested in is whether
Congress has set forth, by implication or otherwise, a theory of contract law
which in this localized and particular situation makes application of the earlier
assumed New York law impracticable or improper. And this we think is the
case.

13

We may perhaps assume that the primary object of congressional concern is the
American producer. So it is planned to safeguard him from loss by the
precipitate operation of the export license system before he has adjusted his
business to it. But significantly the Act is not so limited. In terms it is also
extended to an "exporter." Surely there will be many cases where a producer
sells to an exporter who is amenable to process in this country and who, under
the existing law of frustration, is not entitled to repudiate his contract. It seems
clear that the benefit of this remedy should be extended also to such an exporter
by lowering the technical bars to contract recovery where the producer has
already directly availed himself of the congressional relief. The Act, construed
as the defendant would have it, would mean that Congress had provided a
double recovery for any producer fortunate enough to deal with a purchaser
suable and financially responsible. Nothing in the Act suggests such a result;
the developing common law of the country indicates a contrary trend; and the
result is not a necessary one under the precedents True, the plaintiff may not be
technically an exporter (though perhaps it is). At any rate it is an American
corporation transshipping goods abroad which is suddenly caught in the
operation of the export license system. Hence it should not be denied the
intended remedial benefits under the Act after the producer has been wholly
recompensed.

14

Under the precedents it is clear that the Erie-Tompkins principle of respect for
state law yields to overriding national policy and law. The outstanding case is
Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838,
holding checks issued by the United States subject to a national law, even
though no act of Congress so provided. The same principle was likewise
expounded and applied in National Metropolitan Bank v. United States, 323
U.S. 454, 65 S.Ct. 354, 89 L.Ed. 383. In United States v. Standard Oil Co. of
Cal., 332 U.S. 301, 67 S.Ct. 1604, 91 L.Ed. 2067, subrogation of the United
States over against a person injuring a soldier was held to be a matter of
national, not of state, law, even though Congress had not spoken. Here,
however, we have outspoken acts of the legislative body. Actually we have

already recognized the Export Control regulations as setting a rule of national

policy overriding New York contract law. Mitchell v. Flintkote Co., 2 Cir., 185
F.2d 1008, certiorari denied 341 U.S. 931, 71 S.Ct. 804, 95 L.Ed. 1361. See
also cases cited in Exceptions to Erie v. Tompkins: The Survival of Federal
Common Law, 59 Harv.L.Rev. 966 (1946), and Clark, State Law in the Federal
Courts, 55 Yale L.J. 267, 284, 285 (1946).
15

The authorities therefore seem ample to justify giving effect to the 1948 relief
legislation in the manner that must have been intended without the
countervailing trend represented by what appears to be the current New York
law. Plaintiff is therefore entitled to restitution of its payments beyond and
above any injury suffered by defendant. This would not include the additional
profit on resale obtained by defendant; no reason is apparent why defendant
should not have the advantage it has been able to reap by this fortunate and
frugal act. It appears further that defendant by counterclaim asserted certain
offsets by way of expenses on its resale. If actually its expenses did eat up its
apparent profits, it may deduct the amount of the excess from the prepayment
before its refunding; but these should be duly proven expenses and not
manufactured items, such as a claim for a commission on the resale to the
defendant. Defendant cannot claim payment for its services rendered in its duty
to mitigate damages. The case must be remanded for the determination of this
issue and for entry of a judgment for plaintiff for refund of the prepayment,
subject to deduction of any expenses proven by defendant if and only so far as
they may exceed its profit of $18,765.

16

Reversed and remanded.

Notes:
1

In February, 1948, defendant, Miehle Printing Press & Manufacturing

Company (of Delaware), took over the business of Miehle Printing Press &
Manufacturing Company (of Illinois), which filed a certificate of surrender of
authority with the Secretary of State of the State of New York